FTSE Russell today announces the results of the FTSE Annual Country Classification Review for 2017. FTSE Russell formally reviews country classifications within its FTSE Global Equity Index Series (FTSE GEIS) each September using a comprehensive, transparent and consistent methodology. This annual review incorporates ongoing country classification research and feedback from the independent FTSE Russell external advisory committees to designate markets as Developed, Advanced Emerging, Secondary Emerging or Frontier.

Following the September 2017 annual review, FTSE Russell confirms the following:

Poland, currently an Advanced Emerging market, to be reclassified as a Developed market

Kuwait, currently unclassified, to be included as a Secondary Emerging market

Saudi Arabia close to upgrade and will be assessed again in March 2018

China A-Shares to remain on the Watch List for possible inclusion as a Secondary Emerging market

Iceland to be added to the Watch List for possible inclusion as Frontier market

Nigeria and Mongolia to drop off the Watch List

FTSE Russell congratulates Poland and Kuwait on meeting the requirements for attaining Developed and Secondary Emerging market status respectively. The reclassification of Kuwait is in recognition of the recent market enhancements implemented by the Capital Market Authority of Kuwait and Boursa Kuwait. The implementation of Poland and Kuwait’s revised market status will commence from September 2018.

Saudi Arabia is to be congratulated on the pace of the recent market reforms which are widely acknowledged as being positive. As a result of these reforms, it is anticipated that Saudi Arabia will meet the requirements for inclusion as a Secondary Emerging market from early 2018 when further enhancements to the Independent Custody Model (ICM) are scheduled to be introduced. Accordingly, FTSE Russell will proceed with the launch of stand-alone Saudi Arabia country indexes and global and regional Saudi Arabia inclusion indexes to assist domestic and international investors who wish to seek early index-based exposure to the market.

Because of the size of the international investor flows that follow a change to a country’s classification status, the FTSE country classification process for the FTSE GEIS requires that, in addition to meeting the requirements, the practical operation of changes to market structures be demonstrated before a change in a country’s classification can be confirmed. Accordingly, FTSE Russell will work closely with the Saudi Arabian authorities and index users over the coming months to ensure the efficacy of the recent and intended reforms and the readiness of index users and market practitioners. In recognition of the pace of change in Saudi Arabia, FTSE Russell proposes to bring forward the next formal assessment of Saudi Arabia’s classification status to March 2018 at which point a further announcement on the timing of Saudi Arabia’s inclusion in the FTSE GEIS will be made.

Since the 2016 annual review, the Chinese authorities have sought to improve the attractiveness of the Stock Connect programme to international investors. The Shenzhen-Hong Kong Connect route was opened in December 2016 and there are plans for investors to be able to access cross-border IPOs via the Primary Equity Connect initiative. However, the coverage of the Connect programmes, daily quota limits, the number of trading holidays and the comparatively high level of stock suspensions continue to present concerns to international investors. FTSE Russell will continue to work with the Chinese authorities and index users to address these problems. In the meantime we maintain China A Shares on the Watch List.

Mark Makepeace, CEO FTSE Russell said:

“Congratulations to Poland and Kuwait. The authorities in these countries have worked hard to achieve their promotions.

“The Saudi Arabian authorities should also be congratulated on their very significant progress. The policy changes necessary for promotion have been put in place and we will now begin work with institutional investors and market practitioners to prepare for the promotion of the Saudi Arabian market. I fully expect us to finalise these arrangements and announce the implementation schedule in March next year.

“We thank all the major institutional investors who have participated in our country classification review. Our strong, transparent governance structure is an integral part of our business and we will continue to consult with all participants to ensure our indexes are an accurate representation of global markets”.

FTSE Watch List 2017
In order to ensure that the movement of countries between classifications is completely transparent to market participants, FTSE Russell maintains a Watch List of markets being considered for change between the various market classifications. The September 2017 FTSE Watch List is as follows:

FTSE Russell, supported by the FTSE Russell Country Classification Advisory Committee, will continue to engage with and closely monitor the progress of the Watch List countries. FTSE Russell will provide a formal interim update in March 2018. FTSE Russell provides a minimum of six months’ notice prior to changes being implemented in its indexes.

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